tv Bloomberg Bottom Line Bloomberg March 19, 2014 2:00pm-3:01pm EDT
any indication of what they will give us more clarity. >> we will get back to our roundtable in a few minutes. we are awaiting the fed decision from washington. peter cook is standing by. you are watching a special edition of "bottom line" on bloomberg television. it is 2:00 in washington. >> there is another 10 billion reduction in the bond buying by the federal reserve. the six point five percent unemployment threshold has been replaced with a more qualitative approach. the economy slowed in the winter months due to the inclement weather. let me get to the forward guidance changes. let me redirect you. maximum employment and price stability, a highly commodity to state -- stance remains appropriate.
the committee will assess progress, both realized and expected number towards its objectives of maximum employment and two percent inflation. this will take into account a wide range of information. readings on financial development. the committee continues to anticipate that a likely will be appropriate to maintain the current target range for a considerable time after the asset purchase program ends. the statement goes on to say, when the committee decides to remove policy accommodation, it will take a balanced approach. committee currently anticipates that even after employment and inflation are near mandate consistent levels, economic conditions may or and keeping the target federal funds rate a low levels. -- below levels. line, thenother
unemployment rate nearing 6.5%, the committee has updated its forward guidance. the change does not indicate any change in its policy intentions as set forth in its recent statements. thetailed explanations of changes and forward guidance. the vote was not unanimous. we had one dissenting vote. language weakens the credibility of the committee's commitment to return inflation to the two percent target. the vote was not unanimous. the changes in the economy, during the winter months, growth and economic activity slowed during the winter months.
there are some modest changes in here with regards to growth and unemployment from the 16 policymakers around the fed table. 2014.ojected for 2.8 and three percent, and down slightly. we also have unemployment for this year, 6.1-6.3%. that is down from where it was in december. for 2015, growth that three percent. just to wrap this up, the fund rates projections, when will the fed began to start to increase rates? 13 of 16 policymakers see the fed doing that first move in 2015. 11 of the 16 fed policymakers , one percent or lower by the end of 2015. 12 of 16 have the rate at two
percent or higher by the end of 2016. the big change, the one everyone the-- everyone expected, changes and forward guidance, will they satisfy the markets? we have to wait and see. >> peter, thank you so much. let's get to alix steel. markets are lower right now. >> it was an interesting reaction across the board. downaw all indices trade by about a quarter of a percent. you can see that illustrated. in the s&p, he saw a sharp move down as the announcement came down. we pretty much bounced back. relatively, the s&p is pretty much flat. we see where we are almost trending to neutral after trading around that area for most of the day.
it is a pretty similar story all across the asset classes. this is a 10 year yield. if the fed is not going to buy any more bonds, why would you want to buy bonds? can see it moving down ever so slightly. one asset that is catching a lot of attention in terms of for traders are putting their money has to do with the dollar. the euro decidedly lower against the dollar. the dollar higher against the yen. we continue to see strengthen the dollar. you really want to take a look at gold, very sensitive to any kind of decision from the fomc. continuing its downward spiral we have seen throughout the day. >> alix steel joining us from the datacenter. let's get back to our roundtable. let me start with michael mckee. no surprises, right? >> the
dissent is rather interesting. they chopped the evans rule and talk about their new forward guidance. he suggests that it weakens the credibility of the committee's commitment to return inflation to the two percent target. i do not see any change in language that would suggest that. it would be interesting to talk to the rest of the panel. he says that fosters policy uncertainty because they are going to take a wide range of economic indicators. are the investment community. are you uncertain that would hinder economic activity? not necessarily. i do think we have a much broader and wider range of indicators to watch. one thing they came out of the statement was the knowledge and that asset prices are a key component.
they explicitly noted asset prices. this is a component of policy that we have all been talking about. exclusively on the unemployment rate and cbi for so long. -- cpi for so long. the broader investment community talks about the decoupling between economic growth and financial market prices. the financial market prices are important to their outlook data as well puts watch. >> you talked about at forward guidance. any surprises? >> they did not provide much clarity. yellenl have janet statement ahead of the press conference. it will be interesting to see what she reveals their. -- there. fomc members will be talking to the public about some of these
issues. >> talk to me about what we are seeing on the screen. that is what we saw, those projections tell a story, don't they? we are taking a look at what we are going from 14 to 15. they have revised downward a lot of their guidance. whatf the big questions is they would do with actual interest rates. it looks like they firmed up their views on 2015. that was something that people had expected. the dissent was interesting. >> all of a sudden there is a new tradition of dissenters calling press conferences or telephone conferences. we may hear from him before the end of this week. he has done this in the past. i want to bring up one point about these economic rejections. we have changed not just the chair, but there are three missingt people who are
from the fed productions -- projections. the people making the forecasts have changed or because the consensus of the fed is that we will see a significantly slower economy. one of the interesting things that we can say is when you look , they have moved up their forecast for 2015 as a consensus for where interest rates are going to be. they were thinking they would be in december.cent now they think it will be one percent. we will see rates rise faster. >> gina, i want to ask you what alix steel was showing us in the data center. are you surprised by that? x mike brings up the key point for that. all of the sudden, expectations are to in december. now they think it will be one go -- rates to go faster
and that will impact the market in a negative manner. we will see how things go as we hear the chairwoman's comments. rates on a higher faster pace is not good for markets that have been accustomed to no changes at all. >> we will continue our roundtable discussion in a few moments. more of our special coverage of the rate decision and dr. janet yellen's first news conference. ♪
>> welcome back. the federal reserve says it will look at a wide range of data in determining when to raise its benchmark interest rate. get back to our roundtable. joining me this afternoon, an economist with the bloomberg economics team. he was with the new york fed. gina martin adams, senior equity strategist with wells fargo. and michael mckee. joining us, as always, my colleague alix steel. near zero,rk rate how long can they keep it there? >> apparently a very long time. we have been there for five years now. it is largely dependent upon the economic outlook. they seem to feel that things are going to continue to improve. by the end of 2015, we will have the benchmark rate of one
percent. i can remember reading literature suggesting that next year, we might see final fed funds rates. if we continue to see labor market improvement. they have nine and a number of indicators for us to watch. -- they have named a number of indicators for us to watch. >> why is the unemployment rate still so high? we are a half decade into this recovery. >> you can point to a lot of different reasons. we had hired a huge bulk of our labor into the housing market and we have lost that torsion of employment -- that portion of employment. we have had tremendous advances in technology. we are having a struggle. is far belowace what you would typically see.
>> alix steel is in the data center. that wet to point out are seeing a little volatility in the markets. you can see we saw a pretty big dip down. echoing this theme, but overall, the sentiment seems to be a lot more negative. the s&p off by about five points. .> alix steel michael mckee? >> i am also watching the bond market. we have not seen volatility. now 2.76%. the2-year note, which is one most tied to the funds rate, it has gone from .3589 two now -- to now .62.
some people are looking at this as may be a little -- it is not what janet yellen is going to want to see. that tells you some people are thinking maybe they will start raising rates sooner than we had anticipated. >> what about that rate? mooring from some of those past decisions? >> it could be the expect that rates will rise faster. it could reflect the fact they have less clarity on when rates will rise. looking at the statement, it looks like the fed has enough commitment out there. with the continued asset purchases, the market should feel confident. the need tol provide greater clarity. maybe not as soon as this press conference, but you can expect something --
unusualtatement was about the change in the committee's guidance does not indicate any change in me policy decisions -- change and the policy decisions. >> talking about when they raise rates faster, that brings me to the dollar. specifically the euro-dollar relationship. every other asset class seems to be by the dip mentality. >> when you see that -- i see you shaking your head. >> my first thought is the europeans are breathing a sigh of relief. euro had rallied so much to date that it was creating some pressure for the european economies. my second thought is we had anticipated the dollar would strengthen through the fear as the fed gets closer and closer to normalizing policy and more
away from this accommodative environment. that is starting to play out. you noted that stocks of underperformed -- can we call this a yellen effect question mark >> it is a new fed chairman effect. if you go back to the last four extremelyairs, it is live margin. if you throughout the vocal role ays -- vocal role -- volchker rule. equities have underperformed gold by about 10 percentage points so far this year. the monthly bond buying
program, is the economy at a point where it is strong enough that it can withstand this, this continued monthly reduction in the purchases? distortion.weather you expect things to start to pick up again. that is the best case scenario that economies have priced and. what happens to the housing market if we see mortgage rates start to rise? is withdrawing that stimulus going to be a problem? >> buying assets, as long as they are still buying assets, they are increasing the size of the balance sheet. they are simply increasing the amount of accommodation by last. >> buying assets, as long as they are hoping -- they stand by these words. they meant to not have a policy change today. >> our roundtable joining us today. martin adams,ina thank you so much.
officials from traveling to the peninsula to diffuse tensions. ukraine's military, which is heavily outnumbered in crimea, has come under increased pressure. authorities investigating. missing malaysian jets are trying to retrieve deleted data on a flight simulator along into the pilot. the malaysian police chief says files containing records of simulations carried out on the program were deleted on february 3. the search for the plane in the south indian ocean is focusing on an area about the size of italy based on analysis of the planes fuel reserves. the u.s. has reached a $1.2 billion settlement with tell yota.death -- with to under the agreement, they admit it misled consumers by making deceptive statement about to
safety issues. toyota will play the financial -- pay the financial penalty. that is a look at the top stories. it is 26 minutes past the hour. bloomberg is on the markets. once again, alix steel joining us from the datacenter. >> it is all about the fed. traders trying to understand the fed. s&p, atake a look at the lot of volatility ever since the announcement came out. you saw the initial dip downward, but we have recovered. almost neutral now. take a look at the treasury market, that is where we are seeing a lot of the movement. you see a spike up here in the two year yield. not a lot of investors interested in buying these bonds right now. you're also seeing continued movement in the currency market what it comes to the dollar.
>> welcome back to our special coverage of the fed's decision on interest rates and the statements. yellen nowir janet addressing reporters live on bloomberg television. >> good afternoon. i am pleased to join you for the first of my post-fomc press conferences. beforeairman bernanke me, i appreciate the opportunity these press conferences afford to explain the decisions of the fomc and respond to your questions.
the federal open market committee concluded a two-day meeting earlier today. as you already know from our statement, the committee decided to make another modest reduction in the pace of its purchases of longer-term securities. updated itse also guidance regarding the likely future path of the short-term interest rates. as i will explain more fully in a moment, this change in our guidance does not indicate any change in the committee's policy intentions as set forth in its recent statements. the changes meant to clarify how the committee anticipates policy evolving after the unemployment rate declines below 6.5%. let me explain the economic outlook that underlies these actions. data,e some softer recent
the fomc's outlook for continued progress towards our goals of maximum employment and inflation returning to two percent remains broadly unchanged. unusually harsh with the ring --uary and february especially challenging. however, theing, spending and production data will somewhat weaker than we expected in january, are roughly in line with our expectations as of december. the last time committee participants submitted economic rejections. -- rejections. labor market conditions -- conditions have continued to approve. the unemployment rate at 6.7% is 3/10 lower than the data
available at the time of the december meeting. further, broader measures of unemployment, such as -- which includes marginally attached workers and those working part-time, but preferring full-time work, have fallen even more than the headline unemployment rate over this. -- period. labor force participation has ticked up. the community -- the committee continues to monitor developments carefully, financial conditions remain roughly consistent with the fomc object is. -- object ifs. the fomc continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market. to runon has continued below the committee's two percent objective. that longer-term inflation
expectations appear to be well anchored, and in light of the ongoing recovery in the united states and in many economies around the world, the fomc continues to expect inflation to move gradually back towards its objectives. the committee is mindful that inflation running consistently below its objective could pose risks to economic performance. also recognizes, however, the policy actions tend to exert pressure on inflation that is manifest only gradually over time. assessingill continue incoming data carefully to ensure policy is consistent with obtaining the fomc's longer run objectives of maximum employment and inflation of two percent. outlook is reflected in the
individual economic projections submitted in conjunction with this meaning by the 16 fomc participants is reflected, fourd members, and 12 reserve bank presidents. projectionspants are conditioned on his or her own view of appropriate monetary policy. the central tendency of the unemployment rate projections has shifted down by about 2/10 since december and now stands at between 6.1 and 6.3% at the end of this year. the unemployment rate is project it to reach its longest running level by the end of 2016. the central tendency of the projections for real gdp growth stands at 2.8-three percent. for 2014 and remains somewhat
above that through 2016. participantsomc continue to see inflation moving gradually back towards two percent over time as the economy expands. the central tendency of the inflation projections is 1.5-1.6% in 2014. in 2016. 1.7-2.0% let me return to her our decision to make another measured reduction in asset purchases. we will be purchasing $55 billion of securities per month. $10 billion -- down $10 billion a month from our current rate. we will continue to significantly expand our
holdings of longer-term securities and we will also continue to roll treasury securities and reinvest principal payments from the holdings of agency debt and agency mortgage backed securities. the sizable and still increasing holdings will continue to put downward pressure on longer-term interest rates. , andrt mortgage markets make financial conditions more accommodative, helping to support job creation and the return of inflation to the committees object of. -- objective. the fomc use today's decision to reduce the pace of asset purchases as consistent with the decision-making framework laid out last december and still in place today. as before, if incoming information supports the
committee's expectation of ongoing improvement in labor markets and inflation moving back over time towards a longer run objective, the committee will likely continue to reduce the pace of asset purchases in measured steps. purchases are not on a preset course and the committees decisions about the pace of purchases remains contingent on its outlook for jobs that inflation as well as its assessment of the likely efficacy and cost of such purchases. the fomc also updated its forward guidance regarding the path of short-term interest rates. statement,ed in the the new guidance does not indicate any change in the policy intentions of the fomc. instead reflects changes in the conditions we face. let me explain this more fully.
2012, the committee first stated its guidance in terms of economic thresholds. lowulating the current range for the federal funds rate target would be appropriate at least as long as the unemployment rate remains above to%, inflation is project it be no more than a half percentage point above are , andr running goal longer-term inflation expectations remain well anchored. progress in the labor market has been more rapid than we anticipated. inflation has been lower than the committee expect it. although it served well as a useful guide to policy over the past year, last december, the fomc judged appropriate to update that guidance, noting the
current target range for the federal funds rate would likely be maintained well past the time the unemployment rate declines ifow 6.5%, especially projected inflation continues to run below the committees two percent longer run goal. furtherhe committee is revising its forward guidance to better reflect conditions as they now stand and are likely to evolve over coming quarters. the revised formulation starts with a general description of the fact spurs the drive fomc decision making. and then provides the fomc's current assessment of what those theors will likely imply to future path of short-term interest rates. in committee states determining how long to maintain the current zero to one quarter
percent target range for the federal funds rate, it it will assess progress, both realized and expect it, toward his object is of maximum appointment and two percent inflation. shortrt, the larger the fall of employment or inflation from the respect to the object is set by the fomc, and the longer any such shortfall is expected to persist, the longer the target federal funds rate is likely to remain in the present 02 one quarter percent -- in the one quarter to percent range. indicators of inflation pressures, and inflation
expectations and ratings on financial developments. as i have noted, the fomc's assessment over these factors are present is consistent with the characterization provided in previous forward guidance. the committee continues to willipate the conditions likely want maintaining the current range to the federal funds rate for a considerable time after the asset purchase program ends. especially if projected inflation continues to run below the committees two percent and provided the longer-term inflation expectations remain well anchored. the fomc also supplemented its guidance pertaining to the. --. periodaining to the after the purchase program ends. the statement continues to note that in deciding on the pace for
removing accommodation, the committee will take a balanced approach to attaining its objectives. the statement now adds the committee's current anticipation , even after employment and inflation are near mandate consistent levels, economic warrant keeping short-term interest rates below levels the committees views as normal in the longer run. withguidance is consistent the paths for appropriate policy as reported in the participants projections. it shows the federal funds rate for most participants remaining well below longer run normal values at the end of 2016. although fomc participants provide a number of explanations for the target, remaining below level,ger than normal
many residual impacts of the financial crisis and some note the potential growth rate of the economy may be lower at least for time. in summary, the committee's actions today reflect its assessments the progress in the labor market is continuing but that much remains to be done on both the jobs and inflation fronts. unemployment is still elevated. underemployment and long-term unemployment remained significant concerns. inflation is running significantly below the fomc's objective. thee conditions warrant continuation of highly accommodative policy reflected in today's policy statements. the federal reserve's interest rate guidance and its -- substantials
increased holdings of longer-term securities will ensure that monetary policy remains highly accommodative, promoting the fomc's objectives of maximum employment and price stability. thank you. i will be glad to take your questions. >> [inaudible] >> i am with the associated press. could you go through -- could you give us a little insight as to how the decision was made to drop the 6.5 numerical target? there any concern expressed that there has been criticism on forward guidance that it is confusing markets? thathere concern expressed it would have been better to go to a lower target? could you also a dress the
concerns raised in the dissent that by dropping this, it lowers the commitment on finding low inflation? >> as i mentioned in my statement, the reason the committee felt the time had come to revise the forward guidance is not because we think it is not an effective. the committee does think it has been effective. it has a very useful impact in helping markets understand our expectations. becoming as the unemployment rate gets closer and closer to 6.5%, to breaching that threshold that seems like the one that is likely to be breached. the question is, markets want to know and the public wants to understand the on that threshold
how will we decide what to do? the purpose of this change is simply to provide more information than we have had in the past. we try to give a general formulation of what we will be looking at, which is how far are we, how large are the shortfalls , and how fast do we expect progress to be that will be the main factors we will be looking at. we initially started with unemployment rate as a threshold . it was easy enough for the committee to say, with a not implement rate above six .5%, we
know we are not close to full employment. unemployment -- not close to an employment level consistent with our mandate. we would not dream of raising the federal funds rate. has never felt the unemployment rate is a sufficient statistic for the labor market. if i had to choose one indicator of the labor market on the unemployment rate is as good as one as i could find. in assessing the real state of the slack in the realist -- in the labor market and the inflationary pressures or deflationary pressures that could result from that, it is appropriate to look at many more things. that is why the committee now states, we will look at a broad range of information so the closer we get as we narrow in on coming closer to the target we want to achieve, we will be
carefully considering many indicators of how close are we to our target. those are the main reasons. dissent. about the i believe he noted in his dissent that he endorses the new the likely path after federal funds rate we began to finally raise it. it ist -- that indicates unlikely to be back to normal levels at some time. he questions whether or not the forward guidance shows sufficient commitment of the committee to its two percent inflation objective. , on my ownly say behalf and on behalf of the
committee, we are fully committed to the two percent inflation objective. we do not want to undershoot inflation for a prolonged period of time. -- they policy operates policies we have in place will gradually move inflation back to two percent. if the committee had real concerns that inflation were going to remain persistently below two percent, i feel confident the committee would act to prevent that. >> [inaudible] >> wall street journal. in the interest rate projections made by fomc participants that supplement your statement, or seems to be a slight upward drift in the expectations for rates going out to 2016. a majority of officials raised
at one percent or higher. in the last forecast round, a majority saw less than one percent. i wonder if you could explain why there is this small upward drift in expected rates among committee members, whether these projections are a good guide for the public about where -- the path of rates going forward. and how you reconcile this the assurancesth the committee makes it it statements that rates will stay below normal levels. only very limited upward drift. , in assessing the review compare today's assessment with decembers, it is virtually identical in. almost nothing has changed in
the overall committee assessment of the outlook. unemployment has come down. the labor market has improved. slightly more rapid improvement in the unemployment picture might explain -- i cannotslightk for why people write down what in the -- a little bit upward shift of those dots. one should not look to the dot plot as the primary way in which the committee wants to or is speaking about policy to the public at large. the fomc statement is the device the committee uses to express his opinions. we have expressed a number of
opinions about the likely path of rates. the committee has endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends the for it will be appropriate to begin to raise rates. present path, that is not preset. we would be looking at next fall. that is in port and guidance. looking further out, let's say if you look toward the end of 2016 when most participants are thatct ring -- projecting the employment situation, the unemployment rate will be close to their notion of mandate consistent. look this time and you gazed at the picture from
december or september, the first year we showed those slides for the end of 2016. the massive point that noticeably below what the participants believe is the normal level for nominal short-term rates. the committee today, for the first time, endorsed that as a committee view. i think that is significant and i think that is what we which -- we should be paying attention to. i would warn you that these dots are going to move up and down over time, a little bit this way or that. the dots move down a little bit in december relative to september and may moved up ever so slightly. i do not think it is appropriate to read much into it. long wayf 2016 is a
out. monetary policy will be geared toward evolving conditions in the economy. the public does need to understand that as those views 's views on committee policy will evolve with them. that is the kind of uncertainty the committee would want to eliminate completely from its guidance because we want the policy we put into place to be appropriate to the economic conditions that will prevail years down the road. >> [inaudible] not to theo look dots, but as the statement. the one particular paragraph which says the committee anticipates a lower than normal rates even once you return to the long run. it means once you hit the longer of 5.4%.loyment rate once you get a two percent
inflation rate, the market should not anticipate the longer run four percent fed funds rate? suggestthat implicitly a shallower glidepath once you take off? >> it does suggest a shallower glidepath. what the committee is expressing is its forecast of what will be appropriate. we have had a series of years now in which growth has proven disappointing. members of the committee have different views about why this
is likely to be true. , when the labor market is normalized and inflation is back to our objective, maybe a slightly why itnt view on exactly is likely to be the case that interest rates will be a little lower than they would in the longer run. for many, it is a matter of headwinds from the crisis. it has taken a long time to dissipate and are likely to continue being operative. say, manyles i would households are undergoing balance sheet repair. there are many underwater mortgage holders, difficulties to gain access to credit through home equity lines of credit. for some, that makes it difficult to finance small
businesses. mortgage credit is very difficult for those to get without pristine credit scores that improved somewhat over time. policy somewhat tighter than would be expected over the next several years. headwinds from a global economy. eveneneral assessment is after we have had an accommodative monetary policy for long enough to get the economy back on track in the sense of meeting our objectives, the stance of policy that will be appropriate to accomplish .hat won't be easier eventually, years later, most people think they will go back
up. that suggests the path will be gradual. i do want to emphasize this is a forecast. this is the committee's forecast based on its understanding of the economy at this time. as we watched the economy over the next several years that could evolve. washington post. you mentioned recently that the fed was trying to assess the --ance of whether the facts as a reason for the slowdown. you guys mentioned in the eatherent w specifically. are you concerned there could be something else going on? certainly the analysis we
and we did spend a lot of time discussing w eather. weather has played an important role in weakening economic activity. it is not the only factor that is at work. most projections were reasonably week. it is an important factor, but it is not the only fact are. it is likely in the view of most committee to begin to watch out in the second quarter we could even see some rebound.